Sales Leader: Underspending To Plan Will Not Be Rewarded!

Does the following sound familiar? Sales fall short at 93% in the first quarter. The leadership team is disappointed, but there’s some good news. Once the CFO closes the books, you see you’ve offset the shortfall with lower spending, and you’re even a bit ahead of the cash forecast. The lower spending and better than expected cash flow falls into a few categories: a couple of backfills in R&D and G&A that have yet to happen, slightly lower marketing spend and customers paid faster than expected. The savings also include a couple of bigger buckets: lower sales commissions and three sales headcount lower than planned. The lower actual spend and the few CFO implemented hedges in the plan resulted in cash flow plans being hit. So there’s concern but not panic. At least not yet.

My recommendation is to treat such scenarios like a fire drill. First of all, the sales leadership, while not happy, feels like the good news on cash helped offset some of the bad news. Some sales leaders forget they will never be fired for over-spending, but rather for under-delivering! This is actually a truth that may sound obvious, but in real life sales leaders often don’t take full ownership of their budget. And to make things worse, the CFO sentiment at that point may be not to push higher spending in sales, but to caution the head of sales to not spend more without being sure it will increase overall yields.

As one of the fundamentals of sales planning is building a plan based on expected sales reps’ yields and number of quota carrying salespeople, being behind on ramped sales headcount (HC) is a problem. The typical sales plan is dependent on having enough salespeople in their seats to compensate for bad hires, attrition, regional issues and a number of other challenges that will come up. In addition, in Enterprise software the true ramp time for a new rep can be 6-9 months (even if we prefer to believe it is 3-4 months). This means in addition to the problem of being under HC, any additional turnover (whether desired or undesired) will compound the problem, and even being only a quarter into the year in the above example, in a 20-25 person sales team you could quickly find yourself to be five ramped HC below plan for the rest of the year.

Needless to say, if you’re spending less on commissions due to falling short of plan, the attrition risk also goes up. While sales rep yields can go up to compensate for some of the lower planned HC, the reality is you will most likely be reducing the margin of error, have less overall activity, go dark on coverage for certain regions where you require specific language skills and therefore, have a high likelihood of missing plan over and over again.

So, in the spirit of preventing the downwards spiral and maximizing spending aligned with hitting the numbers (and keeping your job), my advice to you, the sales leader, is to attack this situation immediately in a number of ways:

  • Make hiring an ongoing priority for yourself and the sales managers. You should always be hiring, even if you’re at planned headcount. You should encourage HR to raise a red flag if any sales manager is not prioritizing hiring which happens quite frequently given the short-term pressures typical to sales.
  • I have always encouraged sales leaders to try and be at least one headcount ahead of plan. Sure the CFO will not like it, but you can clarify to the CEO and CFO in reality you are unlikely to be over budget. That’s because the challenge of finding and hiring the right people and the impact of undesired or desired attrition makes it very hard for sales leaders to maintain “at plan” sales capacity. And in the unlikely case you do end up being one headcount ahead you will most likely see it level out quickly due to either have a low performing rep you can let go or you may suffer some natural attrition.
  • If you’re not able to get to your budget spend on HC, think of how you can leverage those dollars to help accelerate results for the sales organization. You could invest in live dialer solutions to get your existing reps to have a lot more conversations. You can transfer some of that budget for a short-term oriented marketing campaign to bring in more leads or encourage hand raising within your existing market database. Or you could increase travel spend to focus on what’s within reach in the pipeline to grow probability and deal size.
  • Spending HC savings on variable cost as discussed above is not the only solution. You can also spend on hiring initiatives. If you’re doing most of your recruiting using internal resources via LinkedIn or referral programs, you can complement these efforts with paid external recruiters and/or increase the incentive for the internal referral program.

I realize that some of you reading this may not quite agree, believing there are many other factors that may justify not sticking to a spending plan, e.g. not enough leads, fear of reducing yields for existing reps thus risking undesired turnover, and more.

But my point is simple. Being risk averse in the face of underperformance is a guaranteed recipe for further underperformance. It is critical as a sales leader to understand that every dollar not spent on trying to increase yields or ramped HC is significantly reducing the company’s chances on an ongoing basis to hit its numbers. Are there other factors? Sure… Could the CEO and CFO at some point decide to recast the spending and revenue plan? Sure, but until that happens, it is the sales leader’s responsibility to do what it takes to bring in every cent possible. You will not get fired for spending all of your budget to try reverse a trend of shortfall.

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